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ifo Viewpoint 218: What Does the Temporary Reduction in VAT Achieve?

There’s no lack of money: in its fight against the coronavirus recession, the German government has launched a series of economic stimulus packages, most recently just a few days ago. One particular measure in this latest package is stoking a controversial debate: a temporary reduction in VAT. Between July 1 and December 31, 2020, the standard rate will fall from 19 percent to 16 percent and the reduced rate from 7 percent to 5 percent. This will bring tax relief to the tune of EUR 20 billion. But is this measure really a suitable way to inject strength into the economy?

ifo Viewpoint 217: The Policy Agenda for the Post-pandemic Period

Many companies, employees, and self-employed people in Germany are currently struggling to cope with the restrictions of the shutdown. Nevertheless, the time has come to think about what comes next. How can policymakers support an economic recovery?

ifo Viewpoint 216: How Will an Exit from the Shutdown Work?

The Covid-19 pandemic has plunged Germany, and many other countries, into an unprecedented crisis. Restrictions on leaving the house and meeting with people have been imposed and many companies have halted production. 

ifo Viewpoint 215: The Coronavirus Epidemic: Economic Consequences and the Need for Political Action

The current coronavirus crisis is plunging Germany into a complex economic crisis, the dimensions of which many people still underestimate. It is exposing the German economy to a simultaneous supply and demand shock. In addition, there is a risk that the supply of credit to the economy will be disrupted and that the sovereign debt crisis in the euro area will return. In terms of economic policy, the right response involves a combination of massive support measures that must be targeted precisely and enacted quickly. 

ifo Viewpoint 214: Neodirigism

Bank failures, economic inequality, populism, train delays, lack of housing, pollution – all this is laid at the feet of neoliberalism. Neoliberal policies are often named as a cause of social and economic grievances. The term actually refers to a historical school of though that, in response to the world economic crisis of the late 1920s and early 1930s, demanded not less but rather more government action to establish conditions that would improve the functioning of the economy. However, people who use the term nowadays are usually referring to a disproportionate faith in the market and the state’s withdrawal from areas where it is actually needed.

ifo Viewpoint No. 213: Challenges of Negotiating a Free Trade Agreement between the UK and the EU

Now it is official: at the end of January, the United Kingdom left the European Union – and not in the hard Brexit some observers had feared but an orderly departure. That notwithstanding, Europe is already facing its next challenge. The exit agreement stipulates that the UK will remain a member the customs union and the common market until the end of 2020. By that time, The EU and the UK must have concluded a free trade agreement. If not, customs duties and other trade restrictions would enter into force. However, reaching such an agreement takes time.

ifo Viewpoint No. 211: The Economic Legacy of the Merkel Era

14 years of Angela Merkel – an economic review: Merkel’s chancellorship ushered in important reforms. Until welfare state expansion started to crowd out growth oriented policies.

Angela Merkel has served as German chancellor for 14 years. If she stays in office until the end of the current legislative period, she will draw level with Helmut Kohl, who was also chancellor for 16 years. Even so, one thing is clear: the Merkel era is drawing to a close. What is the economic legacy of her period in office?

ifo Viewpoint No. 210: Time Has Come for Developing European Public Goods

Now that the EU has a newly elected Parliament and a new Commission, what should be its agenda? Traditionally, its focus has been on economic integration, for example through the single market, the euro or banking union. The EU budget is small and still mostly spent on agricultural and transfers to poorer regions. Nearly seventy years after the Coal and Steel Community, however, this emphasis is increasingly odd. European integration delivers benefits (and disintegration has costs), but it is not a sufficient answer to the challenges Europe faces today.  

ifo Viewpoint No. 209: Reform of Property Tax Is Unnecessarily Complicated

Following lengthy negotiations, the federal and state governments in Germany have agreed to a reform of property tax, and the Bundestag has now enacted the reform. The debate centered on two concepts: an area-based tax and a value-based one. In the end, it was agreed to use value as the basis for measurement.

ifo Viewpoint No. 208: The Debt Brake Is the Target of Criticism – But It Supports Sustainable Fiscal Policy

Criticism of the debt brake enshrined in Germany’s Basic Law is growing. In view of the downturn, more and more politicians and economists are arguing that the debt brake stands in the way of reasonable economic policy and is an obstacle to public investment. What should we make of these accusations? It is right to ask, ten years after the introduction of the debt brake, whether this instrument is outdated. But the criticism is overblown. The hopes that some people pin on an end to the debt brake are unrealistic. And the debt brake by no means prevents policymakers from taking economic countermeasures in the event of a crisis. The German economy is weakening, but current forecasts expect it to stabilize in 2020. Only if, contrary to expectations, the downturn were to worsen would it be worth considering a debt- financed stimulus package. Then the government could take countermeasures by improving depreciation for investments and moving up the planned abolition of the solidarity surcharge from 2021 to 2020.

ifo Viewpoint No. 207: Net Wealth Tax: The Wrong Answer to a Justified Question

A growing number of people in Germany are calling for a revival of the wealth tax. The Social Democratic Party (SPD) isn’t the only one that favors a wealth tax – the Greens have voiced their support, too. The justification given for this demand is the increasingly unequal distribution of wealth, which owes primarily to the boom in real estate prices. Is this a good idea?

ifo Viewpoint No. 206: EU-wide Minimum Wage Is no Recipe for Prosperity Differences

In Europe, there are increasing calls for an EU-wide minimum wage. For example, during the European election campaign, the lead candidate for the Social Democrats, Frans Timmermanns, called for all EU member states to introduce a minimum wage of 60 percent of the respective national median wage. Commission President Ursula von der Leyen has also called for regulations governing EU-wide minimum wages.

ifo Viewpoint No. 205: The G20 Resolutions: Breakthrough to Better International Taxation?

"It is right that the G20 countries are trying to coordinate their efforts against tax avoidance. So far, this has usually only happened unilaterally," explains ifo President Clemens Fuest in the current ifo Viewpoint. 

ifo Viewpoint No. 204: How Serious Politics Must Counter Populism

ifo President Clemens Fuest opposes false political responses to populism. He outlines the four pillars on which liberal economic policy is based: A solid foundation (competition, open markets, private property, flexible prices and wages, personal responsibility), effective regulation, openness and diversity, and a strong welfare state.

ifo Viewpoint No. 203: Tax-Cut Time for Germany?

ifo President Clemens Fuest is in favor of reducing corporate taxes in the current ifo Viewpoint.

ifo Viewpoint No. 202: Germany’s new industrial policy

By laying out his national industry strategy 2030, German Federal Economy Minister Peter Altmaier has kickstarted an important debate. How is Germany’s future as an industrial location to be secured? Many see technological change, US dominance in digitalization, and China’s ascendency as a threat to traditional industrial countries like Germany. Is a new national industrial policy the right reaction? There are three fundamental problems with industrial policy. First, politicians know no more than private investors about which technologies will win out in the future. Second, they tend to be worse than the private sector at terminating failed projects in good time. And third, there is the danger that long-established, politically well-connected companies will abuse industrial policy in order to secure privileges at the expense of competitors, taxpayers, and consumers.

ifo Viewpoint No. 201: Creating a Shareholder Culture and the Germans’ Treasure

With his proposal to promote equity-based saving, the German conservative politician Friedrich Merz has placed an important topic on the agenda. Germans are busy saving, but a large part of it ends up in their savings accounts. In times of zero interest this is not a good investment. Demographic ageing means that payas-you-go pensions are falling. The resulting pension shortfall is pretty hard to fill with savings at zero interest rates. Shares offer a higher yield in the medium term.

ifo Viewpoint No. 200: The Third Type of Inter-System Competition: Europe and the Rise of China

In the debate over the economic and political future of Europe a widely debate challenge is that the global balance of power is shifting towards Asia, and especially towards China.

ifo Viewpoint No. 199: Tragedies Like Greece Must Not Be Repeated

This August the third bail-out programme for Greece came to an end, but this does not mean that the crisis is over. The country will feel its after-effects for a long time to come and it remains hard to say whether investors will ever get their money back. But the Eurozone can stop crises like Greece from happening again elsewhere by implementing reforms that strike a balance between greater fiscal discipline and more solidarity.

ifo Viewpoint No. 198: Tariffs on cars

The escalation of the conflict between the USA and its trade partners seems inexorable. In May 2018 Donald Trump commissioned the US Department of Commerce to investigate whether car imports constitute a threat to US national security. The US Department of Commerce points out that the share of cars imported into the US market has risen from 32 percent to 48 percent over the last 20 years. Between 1990 and 2017 the number of jobs in the US automotive industry fell by 22 percent. US firms accounted for only 20 percent of global research and development expenditure in the automotive sector, and for just 7 percent of car part production. It therefore seems very likely that the US government will argue that car imports pose a threat to national security. That is, of course, no more than an excuse to impose tariffs.